23 mar. 2012

This collection brings together fifteen essays published between 1994 and 2008 which all look into the contribution of a remarkable group of economists known as the "Cambridge school" or the "Cambridge Keynesians". The people involved are better defined as a "group" rather than a "school", to denote not adhesion to a common body of doctrine but rather the idea of both cohesion and sharing. This collection focuses on Keynes, Kahn, J. Robinson and Sraffa, who all shared in the physical space and lifestyle of the University of Cambridge. The bond between them was intellectual partnership, a recognised common ground, dialogue and acceptance of criticism. Some of the essays in this collection address the content, as well as the method and "style", of the type of economics associated with the Cambridge tradition at the very core of which those economists stand.
The first section opens with a chapter presenting the group within the physical and metaphorical place which was Cambridge, and the remaining five chapters centre on the life and work of each economist. The second section has papers looking at them in pairs, as it were, and revolves around the theme of their collaboration in various intellectual achievements. In particular, the opening piece makes the rather bold point that the road to the General Theory was not a solitary path. In other two papers much is said of Sraffa’s intellectual isolation in Cambridge and the difficulty of communication with Joan Robinson. The chapters in the third section take up aspects of their theories and approaches which justify the importance and relevance of the Cambridge tradition in economics.
This book should be of interest to students and researchers within the history of economics and economic thought, particularly those focussing on the Cambridge or Keynesian traditions.

9 mar. 2012

"Pierangelo Garegnani was a major economic theorist and historian of economic analysis. To him economic theory and its history were but two sides of a single coin. He was possessed of great intellectual power and an uncompromising dedication to his work, which in the tradition of Piero Sraffa propelled the revival and further elaboration of classical political economy. As a person he was not always easy to deal with – the solemnity of purpose, as he saw it, could overshadow his behaviour. He was one of the deepest thinkers I encountered. His work can be expected to have a lasting impact on the economics profession".

"Garegnani provided compelling support of Sraffa’s interpretation that the classical economists from Adam Smith to Ricardo and then Marx had determined the general rate of profits and relative prices in terms of the following ‘intermediate’ data (i.e. data in the theory of value and distribution, but variables in other parts of the theory): (a) the gross output levels of the various commodities, (b) the real wage rate(s) or the share of wages in national income and (c) the technical conditions of production actually in place (Garegnani 1981, 1984, 1987). Most important, in the classical economists the distributive variables, the rate of profits and wages, were not explained in terms of the marginal productivities of capital and labour". ...

"In accordance with Sraffa, Garegnani (1981, 1984 and elsewhere) insisted that the classical surplus-based approach does not stand or fall with the labour theory of value. Therefore it did not come as a surprise that Garegnani got involved in debates with some Marxists, who contend that the labour theory of value is indispensable in demonstrating the ‘exploitative’ nature of profits. According to Garegnani this involves a misunderstanding. Already the fact that workers do not get the whole net product could be read in this way. More important, when Marx was writing, that is, before marginal productivity theory began to filter into the academic and public discourse, one might still have been content with the observation that positive profits presuppose a positive surplus value (or surplus labour). But once marginalist theorists had argued that profits do not express exploitation but rather the productivity enhancing effect of the employment of capital, an entirely new situation emerged. What if marginal productvity theory happened to be correct? As Samuelson’s surrogate production function shows, marginal productivity theory and the labour theory of value are not incompatible with one another.(1)

"It is ironic to see that the classical approach, coherently developed, actually undermines Say’s law – the law for which Keynes had thought he could put classical analysis to one side. If we cannot rely upon the conventional principle of substitution in production according to which the demand for an input (e.g. labour) per unit of output can be expected to increase as the price (the wage rate) of the input falls, then there is no reason to presume that the economy will bring about a tendency towards the full employment of all productive ressources. This result does not depend on the (downward) stickiness of prices. Even if prices are flexible, a fall in the real wage rate need not lead to rising levels of employment, as conventional economic theory predicts. Garegnani praised Keynes for having established the principle of effective demand, that is, there is no presumption that aggregate investment will oscillate around full employment savings"...

"However, he was critical of Keynes for having retained important elements of the marginalist doctrine and especially the concept of the ‘marginal efficiency of capital’, which was but the orthodox investment function in new garb. Yet the concept could not be sustained, because it was based on the untenable marginalist principle of substitution between factors of production"...

"With the analysis not constrained by the straightjacket of the full employment assumption, one does not encounter in classical economics such concepts as Pareto optimality: a system which, in normal conditions, exhibits smaller or larger margins of unused productive capacity and work force is subject to different laws than a system characterized by full employment and full capacity utilization. In conditions of idle productive capacity the usual marginalist reasoning does not apply. In the marginalist world aggregate effective demand, by definition, has no impact on actual output as a whole and its growth over time, whereas in the world of the revived classical economics it has. According to Garegnani the principle of effective demand matters, in the long run no less than in the short run. While in the short run it is reflected in higher or lower degrees of capacity utilization and employment, in the long run it is reflected in a larger or smaller growth rate of productive capacity".

Buenos Aires city with its Jacarandá trees rain in november.

Meeting of Historians of Economic Thought from Europe and Latin America.
The conference is part of the European Society for the History of Economic Thought (ESHET) activities taking place outside Europe and the second in Latin America. Conference dates: November 21-23, 2012. Buenos Aires.

Information required for the reception of papers and workshop proposals:

1) An abstract of approximately 400 words for papers and 10.000 words for session proposals (only in English and / or Spanish). Please use Arial font, 12 pt., 1.5 spacing on A4 or Letter.

2) We will welcome abstracts for papers on various aspects of the history of economic thought in different periods.

3) Suggested themes for the Conference:

-Latin American structuralism and center-periphery theories
-European and Latin American experience of integration. Past and Present
-Classical political economy and effective demand
-Free trade and protectionism in primary export economies.
-Dependency theory and heterodox theories.
-Export promotion and import substitution
-Marxist thought in Latin America
-Liberalism and the establishment of national States
-Import substitution and growth.
-Keynesian theory in Latin America
-Economic crises in Latin America and orthodox economic theory
-Developmentalism and new developmentalism in Latin America
-CEPAL and development theories
-Center-periphery and orthodox economic theory

4) If your paper does not correspond to the suggested topics you may include it, by proximity, on the panel that best suits your interests, even if it is not in the initial list of proposals.

5) Abstracts and papers should be submitted in Spanish or English.

6) Deadline for abstracts and workshop proposals is July 1, 2012.Full versions of the papers for accepted abstracts should be submitted by October 30, 2012 for inclusion in the program. Abstracts, workshop proposals and papers should be sent to:eshetargentina@gmail.com

7) Travel Funding (o scholarships): A limited number of accepted papers will be eligible for travel funding. Papers must be written in English in order to be considered. Full versions of the papers should be submitted by September 30, 2012.

"Almost exactly two years ago my wife Suzi organized a dinner party for friends, here in Rome, to celebrate my 65th Birthday. Piero Garegnani was there and I had the opportunity: in a short speech at the end of the meal, to record my enormous intellectual debt to him. I had the opportunity both to say “thank you”, and to make clear that I really meant it.

It is no exaggeration to say that my encounter with Garegnani’s Ph.D. dissertation in the Cambridge University Library in 1970 shaped my entire view of what economics is about, how it should be done, and what it is for. I came to understand Piero Sraffa through the lens of Garegnani. I came to understand Keynes through the lens of Garegnani. And, as a result of many, often difficult, discussions with Garegnani, I began to clarify and understand my own thinking on economics.

In this lecture I hope to convey some of my initial excitement on reading that Ph.D. dissertation, later published in Italian as Il Capitale nelle Teorie della Distribuzione. And 40 years on, I will attempt to place the arguments of the Ph.D. dissertation in the context of Piero’s later work, and, on a topic that may surprise some of you, in the context of economic policy. After all, economics is not purely a mental like pure mathematics or chess. Economics is meant to be useful.

In developing the argument I will occasionally identify points at which disagree with Garegnani. When I first started putting lecture together I felt a little guilty about this. Am I taking advantage of the fact that Piero is not here, knowing, that if he were here I would have to defend myself against the toughest imaginable examination of the logic of my arguments? I think so. I know that Piero liked nothing better that a serious argument about economics. And I am unembarrassed about being critical, because it is Piero’s own work that forms the starting point of my criticism. As Sir Isaac Newton famously wrote: “If have seen further it is by standing on the shoulders of Giants”."

To read the paper "The Theory of Value and the Foundations of Economic Policy” HERE or HERE

2 mar. 2012

Review of Keynesian Economics

We received from Matías Vernengo this communication about the creation of a new journal.

Aims and Scope It is widely recognized that economic crises can sometimes trigger enormous change, both with regard to economic theory and the politics of governance. Today, the global economy is struggling with the fall-out from the financial crash of 2008 and the Great Recession of 2007-09. The economic crisis that these events have generated, combined with the failure of the mainstream economics profession, has again put the question of change on the table.

With regard to the economics profession, it stands significantly discredited owing to its failure to foresee the recession and the financial crash; its repeated over-optimistic forecasts of rapid recovery; and lack of plausibility surrounding its attempts to explain events. Reasonable people do not expect economists to predict the daily movements of the stock market, but they do expect them to anticipate and explain major imminent economic developments. On that score the profession failed catastrophically, revealing fundamental theoretical inadequacies.

This intellectual failure has prompted us to launch the Review of Keynesian Economics. At a time of journal proliferation some may wonder about the need for another journal. We would respond there is a proliferation of journals but that proliferation is essentially within one intellectual paradigm. As such, it obscures the fact that the range of theoretical inquiry is actually very narrow. A journal devoted to Keynesian economics is therefore needed both to correct this narrowness and because events have once again confirmed the profound relevance of Keynesian theory.

Reflection upon the intellectual history of macroeconomics over the past seventy-five years can help to understand the current predicament and need for this new journal. That history traces an arc, which first saw the eclipse of classical macroeconomics by Keynesian macroeconomics, and then saw the eclipse of Keynesian macroeconomics by a revived and re-tooled classical macroeconomics.

The crisis associated with the Great Depression of the 1930s inspired John Maynard Keynes to write The General Theory of Employment, Interest and Money, a book that explained the persistence of unemployment in monetary economies. Keynes’ theory had enormous influence both inside and outside the academy, and his ideas on the importance of effective demand triggered a remaking of macroeconomics that saw Keynesian theory displace classical macroeconomic theory. That displacement was driven by the failure of classical theory to account for the Depression and the corresponding explanatory success of Keynesian theory. Moreover, not only did Keynesian theory provide an explanatory framework, it also offered practical policy recommendations. After World War II, the Keynesian theoretical revolution inspired new policy thinking that contributed to a twenty-five year period of unprecedented prosperity, now widely referred to as “The Golden Age” of capitalism or “The Age of Keynes”.

From 1945 to the early 1970s, the global economy witnessed an unparalleled period of prosperity that came to an end with the collapse of Bretton Woods (1971), the first oil crisis (1973) and the stock market crash of 1973-74. During this period of almost three decades, the world enjoyed rapid growth, low unemployment and reduced inequality, making Keynesian policies a success by most measures.

However, adherents of classical macroeconomic theory never accepted the legitimacy of Keynesian economics and they forged a counter-revolution, centered upon the University of Chicago and the work of Milton Friedman. In the 1960s and early 1970s the counter- revolution took the form of monetarism, and thereafter it evolved into new classical macroeconomics. The intellectual link between monetarism and new classical macroeconomics was animosity to Keynesianism and a dogmatic predisposition to laissez-faire conclusions.

The counter-revolutionaries were successful in their project and recaptured control of macroeconomics in the late 1970s. Their success was driven by a range of factors including their own intellectual imagination and innovation, intellectual staleness among Keynesians; the Cold War, which promoted laissez-faire ideology; and inflation and political conflict triggered by income distribution conflicts fostered first by full employment and then by the oil shocks of the 1970s.

Most importantly, the counter-revolutionaries opportunistically exploited the intellectual confusions created by the oil supply shocks of the early 1970s. Those shocks unleashed a new supply-side phenomenon of stagflation, which the counter-revolutionaries asserted disproved Keynesian macroeconomics. In retrospect, we know those assertions were false and Keynesian theories of conflict inflation gave a good account of developments, but the dispiritedness of the late 1970s initiated an era of reaction, which included reaction in economics.

It is important to emphasize that the demise of Keynesian economics was not caused by profound logical flaws or lack of supportive empirical evidence. Keynesianism (and other paradigms too) was accused of lacking micro-foundations, when in reality it has always had micro-foundations but rejects micro-foundations predicated on the implausible assumptions of homo economicus and Walrasian characterization of market processes. That Walrasian characterization fundamentally misrepresents economic reality, assuming the existence of institutions that do not exist (i.e. the auctioneer) and ignoring institutions that do exist (i.e. money and money contracting). In doing so, it ignores the macro-foundations that for Keynesians are the twin of micro-foundations.

The inflationary pressures of the 1970s, with the concomitant rise of conservatism in the form of the Reagan-Thatcher movements, were instrumental in the revival of classical macroeconomics and the repression of Keynesian economics. These forces have now waned but they have locked-in a legacy that is hard to reverse. That is because notions such as the natural rate of unemployment are entrenched in macroeconomics discussions and, most importantly, in teaching manuals.

The consequences of the return of classical macroeconomics have been enormous. For society it has entailed an era of neoliberal policy dominance that has contributed to wage stagnation and massive income inequality, which is significantly responsible for the Great Recession and the prospect of stagnation. Economic theory and politics often march hand-in-hand, with theory reinforcing politics and politics reinforcing theory. Together, they both drive policy, making economic theory vitally important for society.

In the end, economic theory is a contested terrain that is fought over by different intellectual tendencies, which may reflect different political and ethical values. In the years after World War II Keynesianism was ascendant, but since the late 1970s classical macroeconomics has been ascendant. Such ebbs and flows are reasonable, and even desirable, in an open society. However, what troubles us is that the period of classical re-ascendance has been characterized by what we think is a closing and monopolization of intellectual space, whereas the period of Keynesian ascendancy was marked by intellectual pluralism.

This closing of economics is significantly attributable to the laissez-faire ideological predispositions of new classical macroeconomics. It has also has been driven by economists’ disdain for epistemological concerns, which has fostered intellectual intolerance and over-reach. Competing theoretical paradigms have been framed inappropriately in terms of truth versus error, a frame that inevitably drives exclusion of the paradigm labeled as being in error. This framing is supported by an erroneous belief that science produces a single true answer. Much vaunted mathematical rigor is built on conceptual narrowness and sloppiness, and the use of math is as much a rhetorical device for selective screening of ideas as it is for exploring the logical coherence of ideas.

These flawed practices have distorted the academy, and in doing so have had profoundly negative consequences for society. That concerns us in our dual identities as professional economists and citizens, and it is this concern that motivates the founding of the journal.

As the name signals, the journal is intended to promote research in a particular paradigm -- the Keynesian paradigm. We make no apologies for this. Journals on international economics promote research in international economics: journals on finance promote research in financial economics. We have no objection to journals promoting particular types of economic research or thinking. What we object to is general-purpose and field journals only permitting research in a particular paradigm.

We have intentionally titled the journal Keynesian without any qualifying adjective or prefix. Our aim is to encourage research and discourse in Keynesian economics – be it old Keynesianism, fundamental Keynesianism, neo-Keynesianism, Post Keynesianism, Sraffian Keynesianism, Kaleckian Keynesianism, or Marxist Keynesianism. The journal is open to all forms of Keynesianism, which we define as (1) holding that output and employment are normally constrained by aggregate demand, (2) holding that the problematic of aggregate demand shortage exists independently of price, nominal wage, and nominal interest rate rigidities, and (3) rejecting the claim that the real wage is equal to the marginal disutility of labor.

This openness to all forms of Keynesianism reflects a desire to avoid intellectual sectarianism, which we think has afflicted past Keynesian discourse. In our view circumstance and ability certainly contributed to the success of the classical macroeconomics counter-revolutionaries, but so too did intellectual and sociological failure among Keynesians. Their tendency to apply arbitrary litmus tests and engage in intellectual sectarianism did a disservice to their project, and in doing so did disservice to society. We want to avoid repeating that history.

The contract with the journal publisher, Edward Elgar, was signed in 2011. We, the founding editors, are very happy with this timing as 2011 marked the seventy-fifth anniversary of Keynes’ General Theory. The founding of the Review of Keynesian Economics is a fitting tribute and celebration of this anniversary. It is also part of the deeper response needed to meet these challenging economic times.

The journal will be dedicated to the development of Keynesian theory and policy. In our view, Keynesian theory should hold a similar place in economics to that held by the theory of evolution in biology. Many individual economists still work within the Keynesian paradigm, but intellectual success demands institutional support that can leverage those individual efforts. The journal aims to offer such support by providing a forum for developing and sharing Keynesian ideas. Not only does that include ideas about macroeconomic theory and policy, it also extends to microeconomic and meso-economic analysis and relevant empirical and historical research. We see a bright future for the Keynesian approach to macroeconomics and invite the economics profession to join us by subscribing to the journal and submitting manuscripts.